Stumbleupon

States vs. Feds: Stimulus Meets Local and State Budget Cuts

Paul Krugman writes this morning
on a subject I’ve been thinking about for the last month or so; what happens to
a stimulus package when the states keep cutting their budgets?

…even as Washington tries to rescue the economy, the
nation will be reeling from the actions of 50 Herbert Hoovers — state governors
who are slashing spending in a time of recession, often at the expense both of
their most vulnerable constituents and of the nation’s economic future.

In his “50 Herbert Hoovers”
column, Krugman favors aid to the states for their most crucial endeavors in
health, education, and infrastructure at this time.States can’t print their own money and thus are stuck
cutting aid at precisely the moment when it is needed most.It’s left to the feds to fill the gap.

A corollary point that Krugman isn’t addressing is my
suspicion that the governors are playing a smart game with the stimulus plan by
cutting spending that they figure the feds will pick up as “shovel ready.”I wonder what the net effect is when
many of these projects are cancelled, then are re-started under the feds.These jobs are ones that would have
been funded by the states, but are now shifted, not newly created.

It will be worth considering whether a separate category
of funding, as Krugman suggests, should be created specifically as aid to the
states to pay for currently scheduled projects and expenditures, funding which
would not be provided under the stimulus plan. If currently scheduled projects were not then included in the stimulus package, the states would be wise to use their aid money to keep them going. Therefore, it would not be smart politics for the states to cancel
needed projects with the expectation that the feds would step in.

The
last thing we need now is for one side of the boat to be bailing while the
other side is busy opening the drains.